Beaumont lays off 175 in ongoing job realignments, but hiring up as well

Beaumont Health is the latest health system in Southeast Michigan to adjust to competitive pressures, laying off employees in some areas and hiring in others in a systemwide restructuring plan.

At least 175 employees have been given pink slips over the past several months and more may be coming, Crain's has learned. The eight-hospital health system also says hiring is up by 3%, or 126 workers, this year compared with hirings during the same period in 2018.

Over the past 18 months, Ascension Health and Detroit Medical Center have seen large-scale layoffs, with Ascension cutting more than 500 workers from its eight hospitals in Michigan and DMC reducing staff by more than 450 in at least two separate rounds of layoffs.

Each system has tactical reasons for the layoffs, but the larger strategic reason has to do with flat inpatient volume, the move to lower-revenue outpatient care, changing reimbursement models, higher pharmaceutical and supply costs, labor costs and an effort to maintain profit margins for bond ratings or shareholder dividends.

There is also concern about the financial impact of lower reimbursement to medical providers from no-fault auto insurance changes approved this year by the Michigan Legislature.

Those changes take effect in July 2021. Some systems are trying to get ahead of the curve when a new medical fee schedule initially caps the amount they can charge auto insurers for treatment at between 200% and 250% of Medicare rates, dropping down to 190% in 2023.

Carolyn Wilson, Beaumont's COO, said the 175 layoffs started this year and are part of the health system's ongoing review of its operations and needs. She said auto no-fault changes will seriously affect Beaumont, but no staffing changes have been made yet because of it.

"Beaumont, like all healthcare organizations, are continually reorganizing their operational platforms," Wilson said. "We have eliminated 175 positions this year (of 38,000 employees), but we have hired" 4,235 people.

Wilson acknowledged that most of the 4,235 hires are replacements based on regular turnover of personnel. "I view this as the way we do business, a continual configuration," she said.

However, Wilson added: "When we eliminate a job, we know it impacts individuals. (But) we feel an obligation to care for" patients and keep costs low for them and employers.

In a statement, Beaumont said the layoffs also were designed "to flatten the organization, increase efficiencies and reduce redundancies."

Layoffs began earlier this year on the eight hospital campuses. Spring layoffs occurred in the revenue cycle department and financial. In June, when the bulk of the layoffs happened, it affected information-technology staff and those working in employed medical group offices, Wilson said.

"We have 650 full-time equivalents working in IT in units that support business, electronic medical record, databases," she said. "Some (IT workers) we have steady (work for and others) are in specific projects" that end.

Wilson said no direct patient-care employees were laid off. But she did acknowledge that an unspecified number of clerks who support nurses on inpatient units were laid off along with some secretaries who supported administrators and departments.

"We have to get more efficient in support services, the back offices," she said.

But several sources who asked for anonymity, told Crain's that Southfield-based Beaumont, which operates one of the largest health systems in Michigan with eight hospitals and $4.4 billion in revenue, also needs to cut costs over the next several years to help pay for additional capital and acquisition expenses, beyond the normal $300 million a year.

They include paying at least $250 million, and possibly as much as $400 million, to complete the acquisition of Akron-based Summa Health later this year. It is not known how much liquid assets and cash Summa has that can be used to buy out the 30% investment Mercy Health made in Summa several years ago that must be repaid at closing.

Beaumont also plans to spend about $15 million to build 30 urgent-care centers with partner WellStreet Urgent Care and at least two multi-specialty outpatient clinics in Lenox Township and Livonia for unspecified property costs. Beaumont's partner in the outpatient clinics, NexCore Group, will pay for the buildings.

Beaumont also is moving forward on plans to build a $140 million, 117-bed hospital in Oxford. For at least 10 years, Beaumont Health has wanted to build another medical-surgical hospital in northern or western Oakland County. In February, Beaumont filed a certificate-of-need application to build the hospital in an area the Michigan Certificate-of-Need Commission last September designated a "limited access area" because of a lack of beds within 30 minutes for patients.

"Beaumont needs to cut costs because its internal workforce structure is out of whack, and they are spending a lot on building and upgrading facilities," said one manager source, who asked for anonymity.

The manager source also said Beaumont, and other hospitals and rehabilitation providers need to cut overhead costs because they "will lose tens of millions of dollars starting (in 2021) because of the no-fault auto impact. They will be getting two times Medicare payments instead of eight."

Wilson said the layoffs are not connected with any capital spending plan or expected reimbursement cuts, even though the health system needs to cut costs. "The auto no-fault changes will be significant. We have talked about it and I am worried about it, but it isn't until 2021," she said.

Two sources who asked for anonymity because they are managers, told Crain's the bulk of the layoffs started in mid-June, they are ongoing and are affecting many workers ages 55 or older who have seniority.

A Beaumont statement to Crain's said the system has offered displaced workers severance packages of at least one month and its our recruitment team is working with others to find other jobs within the Beaumont organization.

Another source said the revenue cycle and information technology departments lost more than 20 workers each.

In April, Subra Sripada, executive vice president, chief transformation officer and chief information officer at Beaumont Health, has left for a new job. Matthew Zimmie, M.D., also has left as Beaumont's vice president and system chief medical informatics. No other information is available on the departures of Sripada or Zimmie.

Beaumont declined further comment.

Wilson said Beaumont has been generating small operating profit margins, 3% to 4% the past several years, but that its goal is 5%.

"We have some increasing challenges as we look to future," she said. They include insurance and payers hold rates flat and adding more rules, increasing costs for pharmaceuticals, supplies and services.

In 2016, the last year regional data is available, Southeast Michigan's 33 hospitals generated a 5.5% total margin with net income of $655.5 million, according to the 2017 Michigan Health Market Report.

But during the first quarter of 2019, Beaumont's net operating income dropped by 31% as the health system spent more on pay increases and inpatient volume declined.

"Because the labor market is tight, we had a huge nursing (salary) adjustment two years ago and another one in June," Wilson said. "We want to have the highest quality, the highest safety. We've had campus expansions and inpatient care is flattening. We think that is a good thing because it shows we are taking care of patients and why we are expanding to outpatient areas."

Beaumont's operating profit dropped to $37.6 million in the first quarter of 2019, lowering its operating margin to 3.3% from 4.8% during the same period in 2018. On the other hand, Beaumont increased operating revenue by 2% to $1.15 billion.

For 2018, net income dropped 56% to $142.1 million from $321.6 million in 2017, partially due to investment losses of $64 million, according to Beaumont's 2018 audited financial report. However, net patient revenue grew by 6.2% to $4.43 billion and total revenue grew to $4.66 billion last year.

While Beaumont has been reducing its workforce in some areas, it also has been hiring new workers, although the exact net number is unclear.

Since January through June 30, Beaumont hired 4,235 people, which is more than 3% higher than the same period last year with 80% of them in clinical and nursing positions.

While Beaumont has hired 126 more employees during the first six months of 2019 than the same period last year, it is unclear whether Beaumont's workforce has grown or shrunk from the 38,000 number of the past few years.

Mark Geary, director of external communications and media relations, said Beaumont also is hiring more people this year than in 2018. "It's important to note we have more than 175 new employees attend our new-hire orientation program each week," he said in an email to Crain's.

Geary said "it's not like jobs are going away or the workforce is being reduced. We have added more jobs."

Of the 175 people laid off, Geary said 26 have accepted other positions within the system and more could be rehired. "We are having career fairs all the time," he said. Beaumont has 1,000 open jobs.

Wilson said Beaumont has hired a number of pharmacy technicians to supports its new program, "Meds to Beds." Others added are providers in outpatient centers and advanced practice nurses to support inpatient services.

"Beaumont continues to grow and invest. We are hiring many people for great patient care positions with solid salaries," she said.

Still, the 175 layoffs is the highest number since Beaumont Health System, the three-hospital legacy organization, laid off nearly 600 workers during the recession of 2008-2009, when it posted losses of more than $200 million.

In 2008, Beaumont Health System laid off at least 165 workers to cut costs as it faced anticipated financial losses, one of the few times in the history of the 64-year-old hospital organization. Top executives also took a 10% pay cut and department managers 4% to avoid laying off another 225 workers, said former CEO Ken Matzick at the time.

The following year, Beaumont cut another 425 jobs, or 353 full-time equivalent positions, to cut $10 million out of its budget. At the time, Beaumont employed 17,000.

"Beaumont lays off 175 in ongoing job realignments, but hiring up as well" originally appeared in Crain's Detroit Business.